Financial Planning for “Orphan Retirees”

More than 16 million people 65 and older live alone in the U.S, and more Americans are aging alone without spouses or any close family members. For some it means no family heirs for their estates, but the larger issue is how to face challenges if they are incapacitated or suffer a debilitating long-term illness such as Alzheimer’s disease.

Longer lifespans, gray divorce and a growing trend towards childlessness mean the number or “orphan retirees” is likely to increase. For many of those solo retirees, the biggest issue will be long-term care.

Are there long-term care options for orphan retirees? 

There aren’t very many options for solo retirees when it comes to long-term care. Medicare doesn’t cover long-term care, and Medicaid only kicks in when your assets are drawn down.

“There are no solutions if you don’t have money,” says Mary Clements Evans, a financial planner and author of the book, Emotionally Invested, Working to Bring You Financial Happiness & Change the Way You Think About Money. “The solutions if you do have money are pretty good.”

She says 63% of the people in nursing homes are on Medicaid. “If you go into a nursing home, that’s about $120,000 a year,” she says. “A lot of people don’t have an extra $120,000 sitting around, and so then their parent ends up in a Medicaid facility. Because of this cost cutting, the services aren’t great.”

She says the 55+ communities are a good option for those aging alone who can afford them. “Anecdotally, every 55+ community I know has a waiting list,” she says.  “But people are doing that because they want an active retirement. They want to be around people, and they’re not around their kids like they used to be. Before it was just all about all this fun stuff (in these communities). But now they are evolving to talking about health.”

Think outside the Box

Eric Bond, President of Octave Wealth Management in Long Beach, California, says you may have to think outside the box. First, he says you should first consider buying a long-term care policy despite the higher costs as you age.

“They maybe have, let’s say, a daughter, but she lives eight states away,” he says. “So, they are kind of are on their own. The daughter doesn’t really come out, or they’re kind of estranged. For these types of people, I would think getting a long-term care policy makes tremendous sense.”

He says it would make sense even if the retiree is 65. Depending on your sex, your long-term care insurance premiums may range from $2,749 to $4,599 annually at 65 years old. And, if you don’t already have coverage at 65, it’s important to purchase a policy as soon as possible – prices for long-term care insurance increase with age.

One way to do that, says Evans, is an annuity with a long-term care option.

“I really don’t like annuities, but in this case, it uses an annuity,” says Evans. “With the good ones you have life insurance coverage from day one. Let’s say you give them $50,000 and you’re killed the next day, the life insurance often pays $100,000. And then, depending on the policy, depending on your age and when you buy it, you get a multiple of that $50,000 as a long-term care coverage.

“And another good thing about the good plans is that with many of them, if you change your mind or something comes up, you can get most of that $50,000 back. That’s about all our firm is doing anymore, because we think that right now, it’s the best type of long-term care coverage out there.”

One of the lucky ones

Lorraine Cichowski, 72, a retired executive living in Florida, has never married and has no children. She has had an estate plan since the Covid 19 outbreak. She has a large extended family and sister living in another state. And she has a host of long-time friends, some going back to high school, but her estate is going to her schools.

She’s had long-term care insurance for 20 years when a former employer offered it. That employer stopped offering it as a benefit a few years later, but she has maintained the policy and has regularly taken advantage of the inflation option to increase the coverage (at an additional cost).

“I’m one of those lucky people,” she says. “I’ve got pensions and deferred compensation plan, so I have income coming in. I have income annuities in addition to pensions and Social Security and different compensation and long-term health coverage. But, generally, maybe like everybody, I wish I would have saved a little bit more money.”

Other Tips for Orphan Retirees

• Assess and re-assess your financial situation periodically.
• Build a sturdy emergency fund safety net.
• Make sure your estate plan is in place; even if you don’t have dependents, estate planning protects your wishes; you need a will, a medical directive and a financial power of attorney if you become incapacitated.
• Check if your life insurance will cover debts or funeral expenses.
• Build your chosen support system of trusted friends, mentors and support groups and consider enlisted paid professional help.

YOUR TURN

Are you an orphan retiree? What are your plans as you get older? Share your tips in the comments!

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Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

 

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